tv Nightly Business Report PBS January 2, 2013 4:30pm-5:00pm PST
captioning sponsored by wpbt >> this is n.b.r. >> tom: good evening. i'm tom hudson. wall street starts the new year with a relief rally, the blue chips surge over 300 points, as washington lawmakers reach a tax deal on the fiscal cliff. >> susie: i'm susie gharib. many wall street analysts and economists warned clients about the coming debt battles in washington. we talk with maya macguineas, director of "fix the debt". >> tom: will the deal jump start spending, now that americans know their tax rates? we get the outlook for business and consumer spending. >> susie: that and more tonight on "n.b.r."! >> tom: a small deal to avoid the fiscal cliff brings a big
rally to wall street. awaiting president obama's signature tonight is an agreement not to raise taxes on most americans. even though hard decisions on government spending cuts were put off, the deal over tax rates ushered in a 308 point rally for the dow jones industrial average. but as sylvia hall reports, the new session of congress beginning tomorrow faces some big decisions very soon. >> reporter: as americans return to work from the holidays, they might breathe a little easier knowing the fiscal cliff isn't happening. but the deal on the president's desk doesn't end the debate. in fact, it sets the stage for a bitter first quarter fight. the bill does add some certainty to this year's tax rates, by permanently extending bush-era tax cuts for people making less than $400,000 per year and couples making less than $450,000. it also staves off the sequester- that package of sharp federal spending cuts- for two months. but let's look at what the deal doesn't do. it doesn't take the sequester off the table completely, and it
doesn't raise the debt limit. they'll both have to be resolved in february and march. >> it just, to me seems like we're going to have another acrimonious debate just like we had on the fiscal cliff this time, and just like we had on the debt limit in 2011. >> reporter: just last night the president warned congress that he won't negotiate on the debt limit. >> the one thing that i think hopefully in the new year we can focus on, is putting a package like this together with a little bit less drama, a little less, and not scare the heck out of folks quite as much. >> reporter: but, with the sequester and other big spending issues like medicare on the table, striking a deal this year won't be easy. >> this is the best opportunity that we're going to have to save our nation and do those things that we have to put in play. >> reporter: but there's not much hope for a sweeping deal this year. >> my suspicion is that we will you know, kick the can down the road on whatever we do in february or march, and it may be for a year, it may be for two years, but we'll be coming back to deal with issues like this in the near-term. >> reporter: the investment market isn't putting much
pressure on lawmakers to forge a long-term solution for the nation's fiscal troubles, and some fear that could mean a real fix is still very far away. >> the good news is that when we go through these political crises, the markets don't punish us. but that's also the bad news, because politicians are never really put under the pressure to come to a deal on these big critical longer-term fiscal issues. >> reporter: the new session of congress begins work tomorrow. but the players look very similar to the ones in place now, so there's a good chance the partisanship we saw last year will continue. sylvia hall, "n.b.r.," washington.
back in recession. that's about all the good i can say for it. this deal is the ultimate political punt. it is december, it is the last minute. we're all glued to c-span after midnight to see what will happen, and politicians come together to do the absolute minimum. i'm glad we didn't go over the ciff, but that's about all you can say. they did nothing to fix the underlying deficit and debt problems that are really, really damaging to this country and this economy. tore if yo. >> tom: if you listen to the congressional office. help us out. they say the tax cuts approved will add $4 trillion to the debt over the next 10 years, to sequester the coming
spending cuts if enacted as planned, that will cut $1.2 trillion. so net-net, we still have red ink. >> we're on track to be adding trillions and trillions of dollars to the debt over the next decade. what we want to do is -- remember back in the old days, we used to talk about balancing the budget. we're nowhere close to being able to do that now. what we want to do is get this budget to a point where the debt is not growing faster than the overall economy, where we stabilized the debt and we're actually putting it on a downward path. this deal doesn't come close to do that. doing that. we extended trillions of dollars with tax cuts. and people weren't willing to let taxes go up on most americans. but let's not forget, we're going to have to raise revenues as part of a budget deal, and we only raised a small amount. democrats wanted $1,000,000,000,006. and republicans wanted less. on the other side of the
lecher, on spending and entitlements, we did nothing. there is so much more we have to do. >> tom: we have another cliff coming march 1st. the debt limit, we're going to be up against, as well as the sequester cuts they put off until march 1st. can e spending cuts wait? >> the spending cuts can wait if we're serious about putting them in place. what concerns me is that the fiscal cliff was the perfect opportunity to not go off the cliff, but replace it with a comprehensive sensible debt deal. because politicians weren't able to do it this time, i'm more nervous than before. but we have two critical months coming up where we have to make the case and bring politicians together in a bipartisan way to look at all parts of the budget, look at what spending we can cut, how to fix entitlement, and how do to tax reform. we didn't do the tax reform. which is part of the solution. >> we made the temporary tax cuts permanent for those making less than
$400,000. "even after taking the country to the brink of economic disaster, washington could still not forge a consensus to stabilize the debt." right to your point, is there together systemic preventing a comprise? >> people aren't willing to make the hard choices. people ar't wlingo level with the american public. we can't just talk about raising taxes on the super dopplesuper-duper wealthy. we have to talk about really raising revenues, really fixing our entitlement programs, bringing spending down gradually, and we have to have an honest discussion. the second problem, though, is this is a political finger-pointing dec bacdeb back bocal. and we have to face the tackling tough challenges or we're going to fail. >> tom: maya
macguineas has been watching it all. thank you. >> susie: will americans take to the malls, now that washington has moved beyond the fiscal cliff? still ahead, the outlook for consumer and business spending. here on wall street, the dow posted its biggest point gain ever for the first trading day of the year. the blue chip index surged 308 points or more than 2% to close at 13,412. the nasdaq did even better, up 3% for a gain of 93 points, while the s&p 500 tacked on 36. but the nation's fiscal hangover continues in the new year. suzanne pratt takes a look at how much it could hurt investors. >> reporter: the new year's holiday may be over, but stock investors continued partying on the first trading day of 2013. they were celebrating a resolution to the fiscal cliff, after weeks of uncertainty clouded the outlook for the stock market and the economy. big board trader jonathan corpina says investors are
pleased the u.s. isn't a total embarrassment around the world. >> i think the fact that we have some sort of resolution put in place for a short period of time is viewed positive into our markets. i think the transparency, the information, some solid facts out of washington is helping this market move higher. >> reporter: still, wall street, if anything, is good with numbers. and, many market pros worry a deal with higher taxes and no spending cuts is not going to add up for investors. so, expect the stock market to fixate now on how washington tackles spending and the debt ceiling. investors should buckle up for another bumpy ride, with the white house and lawmakers in the driver's seat. >> sadly washington is going to continue to be a focus because we only solved a little bit of the problem with this negotiation of the last several days. we still have the federal debt limit increase to go through. that promises to be a lot more contentious debate. >> reporter: and, don't forget, quarterly earnings season for
corporate america starts next week, with alcoa on tuesday. the circus in washington may get most of the headlines, but company fundamentals could also cause problems for equities. >> i think you're probably going to begin to see this market begin to tread water fairly quickly, not move up going very much, not down very much as we begin to worry about what those fourth quarter earnings releases will look like and what sort of guidance management will give about 2012 earnings. >> reporter: if investors can forget about washington for a moment and focus on history, they might find another reason to celebrate. it turns out a positive start for stocks in the first five trading days of the year, almost always correlates with a healthy gain for the full year. suzanne pratt, "n.b.r.," new york. >> susie: david kelly is predicting u.s. stocks will gain 10% this year, and for the next five years. he's chief global strategist at j.p. morgan funds. >> susie: that is a very positive forecast, david, make a case for that forecast, why you think stocks are going to rally beyond today? >> well, let me clarify.
what i'm saying is on average, stocks can give you a 10% return over the next five years. i'm not going to try to predict what they're going to do in each individual year. they're too volatile for that. first of all, we have actually made progress. this deal -- i know nobody likes the process, and very few people like the product. but we have seen some progress here. this calendar year, 2013, the deficit will be about 5.4% of g.d.p. with this teal in place. four years ago, we were at 10% of g.d.p. we took it down a long way. if we can get the deficit down to 4% of g.d.p., we will get to that position where the debt is not growing any faster than the economy over all. we haven't just been kicking the can along the road. we have been picking up a few cans along the way. we have made some progress. i think that will help the markets move higher over the next few years as we get the results of the progress.
>> susie: even if we set aside concerns about those budget battles in washington, you just heard suzanne pratt's report where there are concerns about earnings coming on, guidance from companies, what their spending plans are going to be, what their hiring plans are going to be. how do you factor all of that in as you make your forecast for the year? >> well, i think a lot of this has to do with uncertainty. i mean, a lot of taxes went up, and i think particularly the payroll tax went up today, which i think is very important. but the one tax that came down is the uncertainty tax. washington has been building out uncertainty, which causes people to hesitate, businesses to hesitate. if you look at u.s. corporate finances, the balance sheets of corporations, they are bloated with cash right now. the companies have money to spend, but they're hesitating because they don't know what the story is going to be on taxes. as the government has clarified that a little bit in the last 48 hours, it should help businesses spend. business spending will be
one of the things that will help the economy over the course of this year. >> susie: you identified a couple of sectors you think will do well in the the new year. you identify consumer discretionary stocks and financials. you can't name specifics here, but why do you like these areas? >> well, i think the keything ie removing that uncertainty. if you look at the consumer finances, overall consumer finances have improved a lot. so big ticket cyclical items like new vehicles, like housing -- those things should do better. corporate spending on new equipment should do better. i also think that improving housing market and just the passage of time is improving financial company balance sheets, and i think financials could do quite well. but there is a big drag in consumer spending. because of the payroll tax. i think the single most important thing for the economy is the fact they didn't extend that 2%
payroll tax cut. i'm surprised it is not getting more attention today. >> susie: moving on to something else, you talked to a lot of individual investors, so you know about the fear factor. they want to put their money in a safe place, and that usually means treasuries or some kind of fixed vehicle income. what is your best advice for individuals going into this new year. >> i think people have got to get over this stock phobia. it has been developed over the last decade, a very bumpy ride for stocks. but if you look at the returns on cash, essentially zero on the savings account, and you look at the long-term balances, it has become very low. it is clear people should put more money into the stocks. the economy is going to be bumpy the first half of this year, but it will improve. people need to put money into equities. the important thing is just redefine safe. safe is not keeping money in cash accounts or long-term treasury bonds, that are losing value over
time. safety is being diversified and taking a long-term view. if ever there was a year that proved long-term view, it was 2012 -- it was full of bumps. but if you stayed the course, it was a very successful 2012. i think taking a long-term view can work very well in 2013. >> susie: to take away, redefine "safety." >> tom: while house lawmakers took action on the fiscal cliff, they failed to take up a bill to help the victims of hurricane sandy.
a vote on the $60 billion federal aid package has been delayed until tomorrow. that sparked outrage and finger pointing from new jersey republican governor chris christie. >> there's only one group to blame for the continued suffering of these innocent victims, the house majority and their speaker john boehner. this is not a republican or a democratic issue, national disasters happen in red states and blue states. >> tom: boehner's aides said the speaker will make the sandy relief bill his first priority in the new congress, which will be sworn in tomorrow. >> susie: american consumers and business executives are now doing the math on how that fiscal deal will impact their finances. a crucial question is where will they spend, and where will they cut back. erika miller takes a closer look at how the deal will affect consumer and business spending this year. >> reporter: the fiscal cliff deal removes a major negative overhang for the u.s. economy.
>> congress wasn't just voting on a fiscal package. they were voting on whether or not they wanted the economy to slip into contraction in the first half of 2013. >> reporter: but, it's not clear the economy is in any better shape, as a result of the deal. >> overall , it should be a little bit of a drag. when tax rates go up, there will be less money around to spend. there will be a lower savings rate most likely. >> reporter: the budget bill raises the top marginal tax rate to 39.6%. those top earners will also pay higher taxes on their investments. but, many of those households will be able to absorb the tax increases by lowering their savings rates. the bigger concern is what happens to spending by lower and middle income consumers. the decision not to extend the payroll tax cuts for all workers, means the average household will have a thousand dollars less income this year. >> a lot of working class and middle income households do live paycheck to paycheck. so if suddenly those paychecks are 1% to 2% points lower, that
doesn't seem like a lot. but on an aggregate basis that certainly will add up. >> reporter: the fiscal agreement will also have an impact on spending by small and medium sized businesses. the majority of them are organized as pass-thru corporations, l.l.c.'s, "s" corps, partnerships, and the like. and those business owners pay taxes at the ordinary income rate-- not the corporate rate which was unaffected by this deal. >> a lot of small business owners, in particular, pay the upper income tax rates. so if you boost the tax rates on them they can spend less money on things like employees, for example. >> reporter: the new fiscal agreement will probably have little impact on firms that are committed to hiring this year, but simply waiting for certainty on tax policy before finalizing their plans. so, consumer and business spending is not likely to improve dramatically in the first six months of the year. most economists think thev?p recovery will continue to muddle along at a roughly 2% growth
rate. erika miller, "n.b.r.," new york. >> susie: so, tom, we kick off 2013, not only with a stock market rally, but also the first merger deal or acquisition of the deal. with avis, which is buying zipcar, paying about a half billion dollars, works out to $12 a share. that's a 49% premium over what zipcar closed on monday. we talked to an
acquisition specialist on monday, and he was saying we're going to see more of these kinds of deals in the year ahead. this was the first one f 2013. >> tom: and a real acknowledgement that the renting cars by the hour is real and growing. avis, a more traditional company, said it hadn't paid much attention, and it is paying attention now, and avis shares up 5% in the deal. clearly an enthusiastic response to training. the broad market in the bulls were clearly in the drivers' seat on wall street. the new year, we have new deal on taxes, seeing the major stock indices surge higher. the s&p 500 staged a sharp rally right from the opening bell, responding to the congressional approval of the tax cut portion of the fiscal cliff. the rally held up even though credit ratings agency moody's warned more needs to be done to address the government's debt if america is to keep its triple-a credit rating. trading volume picked up with 857 million shares on the big
board. 2.1 billion traded on the nasdaq. the gains were broad-based. all 10 of the major stock sectors were up by more than 1.5%. the best gains came in the telecommunications, informational technology and financial sectors. to illustrate just how wide today's stock rally was, consider two areas viewed as early indicators of market behavior. first, the transportation setor. this exchange traded fund follows the dow jones transportation average. today's 2.5% rally breaks out the fund to its highest price since the summer of 2011. the transportation industry is seen as an early signal of the economy. and second: small-cap stocks as measured by the exchange traded fund tracking the russell 2000 index. the fund jumped 3.1% to finish at an all-time high. small caps rallied twice as much as the dow industrials did last year. with a rising stock market, insurance stocks led the way for the financial sector. metlife finished up by 6.7%. lincoln national gained 5.8%. hartford financial was higher by 5.7%.
these insurers have been hurt by lower government bond yields eating into their investment portfolios. but today, interest rates were rising. the yield on the 10 year government bond jumped to 1.84%. that's still very low by historical standards, but it's the highest yield, lowest bond price since september. in the technology sector, the biggt loser among dow industrial stocks last year was one of today's big winners. hewlett-packard rallied 5.4%, putting shares over $15 per share for the first time since october. news of no tax hike for the majority of americans did not help stocks of some retailers like macy's. many stores will announce their december sales results tomorrow. macy's stock was down 1.8%. kohl's, which has struggled in recent months, fell the same. teen apparel seller american eagle outfitter dropped 2.1%. investment firm jefferies downgraded it's rating of a.e.o. to hold and cut its price target over worries about tough
comparisons to its year ago results. dole food company spoiled the optimism for the new year for its shareholders. the company's 2013 earnings outlook was disappointing, thanks to higher costs but aggressive price competition. shares were hit, falling 13.4%. volume jumped more than 10 fold with shares settling at their lowest price since july. all of the five most actively traded exchange traded funds were stronger by at least 2%. the biggest gains came in the nasdaq 100 tracking fund, rising 3.2%. and that's tonight's "market focus."
>> susie: shell oil is preparing to send salvage crews to the waters in the gulf of alaska, that's where one of its oil rigs ran aground on new year's eve. the kulluck platform is owned by shell, but operated by drilling firm noble corp. it was used for drilling test wells off the north slope of alaska last summer, and has about 140,000 gallons of diesel fuel on board. so far, cold weather and high waves have kept salvage crews at bay. >> tom: finally tonight, the new year marks a time when many people strive for personal improvement. and our viewers are no different. here's allison worrell. >> reporter: among the long list of new year's resolutions, "money matters" often is at the top when the ball drops. viewer taylor shoemaker wants to payoff $10,000 to $15,000 in student loans this year. while jessica schulz says she's going to cut back on eating out.
and rusty best plans to put more cash into his 401(k) and roth i.r.a. accounts. while all are good ideas for keeping more cash iyour pocket, financial expert gregg mcbride says rusty's idea may be the easiest way to save. >> annual contribution limits for both i.r.a.s and 401(k)s have increased this year so everybody's in a position to put more money in this year, than they did last year. and the beauty of the 401(k) is that this money comes out of your paycheck directly before you have a chance to spend it. that's the best way to save. >> reporter: he also says if you want financial resolutions to succeed, the best way to do it is by having a plan. >> nothing helps you sleep better at night than knowing you have money tucked away for a rainy day, only one in four american households has an adequate emergency savings cushion, so three of four still have a lot of work to do in that area, make your goal in 2013 building up that emergency savings cushion. >> reporter: that way you'll be in a better position to weather any unplanned financial storms in the new year.
allison worrell, "n.b.r.," miami. >> susie: that's "nightly business report" for wednesday, january 2. have a great evening everyone, and you too tom. >> tom: goodnight susie, we'll see you online at: www.nbr.com and back here tomorrow night. captioning sponsored by wpbt captioned by media access group at wgbh access.wgbh.org >> join us anytime at nbr.com.